Child care companies in the spotlight

KERRY O'BRIEN: Child care, as an integral part of family policy, is shaping as a key battleground for both major parties in the lead up to the next election.

But one issue that's been largely overlooked in the political debate is the growth of profit-driven corporate players in a taxpayer-subsidised service industry.

Over the past two years, the two biggest corporate players -- ABC Learning Centres (no relationship to the ABC) and Peppercorn Management -- have seen their share prices rocket seven-fold and nine-fold, respectively.

But some parents are concerned that those profits are being driven by ruthless cost-cutting -- and that shareholders' interests are being put before those of the children.

Emma Alberici reports.

ROCHELLE HINSON: They increased the fees.

They tried to cut the children's food and nutrition budget and the cook's hours.

Think of their age group it's their most important time for growing, how can we be cutting their food budget?

How can Peppercorn do that?

OTHER MUM: I just want the same level of care as it was before.

EMMA ALBERICI: Rochelle Hinson and fellow mums with children at the Power Road Child Care Centre in Melbourne's Dovetown are angry with the new management.

In the six months since corporate giant Peppercorn took over they say the level of service at the preschool has declined.

ROCHELLE HINSON: Peppercorn are extremely hard to contact.

You call their phone numbers, they don't ring you back.

You leave messages they don't ring you back.

You send emails, you send faxes -- nothing.

It takes something like 10 or 15 returned phone calls just to chase up a response to a letter.

EMMA ALBERICI: The Power Road centre is just one of more than 600 small previously privately run child care facilities across the country that have been bought up by the two major stock market-listed operators, Peppercorn and ABC Learning.

Each week more than 50,000 children under six spend time at one of them.

But a growing number of parents are becoming concerned that their's and their children's interests are being left behind in the race to return profits to shareholders.

ROCHELLE HINSON: The profits are going directly to investors.

The children the staff and the families are suffering because the investors are making so much money from our children.

SUBHADRA CHAPMAN, FORMER PEPPERCORN EMPLOYEE: I was really quite surprised at the amount of food that was available to children.

I didn't believe there was enough food available to children.

Ready, let's play really, really fast.

EMMA ALBERICI: Subhadra Chapman is a university-qualified early childhood teacher.

She's now working in a community-run centre after spending a year with Peppercorn Management in Queensland.

SUBHADRA CHAPMAN: If a child wants more than three triangles of a sandwich surely they have the right to them, but the rationing was that each child was able to have three triangles of a sandwich.

EMMA ALBERICI: The Peppercorn Group rejects the accusation that children at its centres are underfed.

The company says the food budget at Melbourne's Power Road centre was overly generous when they took over, but chief executive Michael Gordon dismisses Subhadra Chapman's claims about rationing.

In the centre she was at in Brisbane she says they were given an allocation of three triangles of a sandwich per child at lunchtime.

EMMA ALBERICI: Do you generally cut food budgets when you go into a centre?

MICHAEL GORDON: No, no, we generally don't.

Most of the food budgets are reasonable and we work in with it.

See again, what it's coming down to is how efficient have you got as a cook who's operating within the centre?

You can have efficient on usage of budgets or inefficient and that's what we'll look at.

Over time it will be seen that these corporate structures can actually add and deliver an increased level of value to parents and children.

EDDY GROVES, CHIEF EXECUTIVE, ABC LEARNING: Our rights issue and our $30 million issue is 98 per cent taken up and we have a very strong dividend policy where we relate that back, we refer that income back to our shareholders.

EMMA ALBERICI: Eddy Groves is the other titan of the tots.

Seen here spruiking his company to investors at the 2002 annual general meeting, he opened his first ABC Learning Centre in 1988.

There are now 253 ABC centres around the country.

Earnings for the six months to December 31 soared 85 per cent and it's in this playground of profit that Eddy Groves has built a personal fortune of $105 million, catapulting him onto the 'Business Review Weekly's list of Australia's richest people.

EDDY GROVES: And we'll do it with quality and with standards and because of that quality and because of those standards that will then return to our shareholders and I'm passionate about it.

EMMA ALBERICI: ABC Learning Centres recently became a major sponsor of the Brisbane Bullets basketball team -- an investment of around $200,000 a season.

Money some parents argue would be better spent improving quality of care at their centres.

BARBARA ROMERILL, NATIONAL ASSOCIATION OF COMMUNITY CHILDCARE CENTRES: So what else would you need in addition to a lap top?

Would you need remote email access so you can check your emails?

EMMA ALBERICI: At the National Association of Community Based Children's Services, there's no spare cash for sponsorships.

In their not-for-profit centres, all the money is channelled back to the children.

And since the Federal Government abolished its capital grants program in 1997, they've struggled to survive, while big business child carers with access to investor capital have flourished.

BARBARA ROMERILL: We're concerned that when you add on top of the requirement of delivering good child care for children the requirement to generate a profit that then gets returned to investors at some distant place, that that adds a pressure on the provider of that service to cut corners, reduce expenditure in order to maximise profit.

We don't think that's in the best interests of children.

EMMA ALBERICI: Last month, the Peppercorn Group reported a staggering 143 per cent increase in profits for the first half of the financial year.

Once you've bought as many centres as you can isn't the next way you grow to drive efficiencies, in other words to cut costs?

MICHAEL GORDON: No.

No, it's not.

Again, it's coming back to when you make an assessment of the business of a child care centre.

The business of a child care centre basically has four stakeholders, or four core interest or needs groups.

One is the investor.

You've also then got parents.

You've got children and you've got staff.

EMMA ALBERICI: In that order?

MICHAEL GORDON: Not in that order, necessarily.

You can put it -- in fact if you want to put the right order, you would start with children.

EMMA ALBERICI: Parents and community child carers aren't the only ones hitting out at the publicly-listed child care model.

Workers are also annoyed.

High-quality care is expensive.

In community centres, 80 per cent of the budget is allocated to workers.

In these corporate centres, just 50 per cent of the revenue is spent on staff.

JANE FARRELL, LIQUOR HOSPITALITY & MISCELLANEOUS WORKERS UNION: The first thing they do is come in and try to reduce the budgets particularly in the workers' area.

They try to get them onto AWAs or pressure them into taking some sort of reduction in their wages and conditions.

EMMA ALBERICI: Last year, ABC Learning took the Queensland Government to court over staff ratio requirements.

ABC wanted the laws relaxed.

They wouldn't have to cover staff when they're on meal breaks.

The company has launched in Queensland.

The company has also launched a defamation suit against the Liquor Hospitality & Miscellaneous Workers Union in Queensland, following an attempt by some of its workers to disseminate material explaining to other staff and parents what they saw as an attack on their conditions.

JANE FARRELL: Here in Victoria we've been video-taped and you know and sort of shouted at from the gate if we try to pass out leaflets to the parents trying to tell them what's happening.

EMMA ALBERICI: According to Subhadra Chapman, conditions for staff at Peppercorn were also challenging.

SUBHADRA CHAPMAN: Well no-one was really permanent, I guess that was a part of the problem.

EMMA ALBERICI: Why do you suspect that was the bias?

SUBHADRA CHAPMAN: Money, absolute money.

The bottom line was certainly how much it cost.

On a daily basis, in a room of 25 children, for two hours of the day, one person would be with those children.

That was staff's lunch hours and like I said the hour so they didn't have to pay you.

For those two hours one staff member would be with 25 children which is against regulation.

CHILDCARE WORKER: It's going to connect up the top here somewhere like a roof.

EMMA ALBERICI: Peppercorn Management says leaving 25 children in the care of one worker is not company policy and indeed, they now employ people especially to cover the lunch hour.

It does admit to employing a lot of people on a part-time basis to get them through periods where occupancy is low, particularly over the summer.

The Child Care Workers' Union in Western Australia took the issue up with Peppercorn and convinced it to reinstate some workers to full-time employment.

So ultimately, why did you decide to leave Peppercorn?

SUBHADRA CHAPMAN: For ethical reasons.

I could not ethically and morally as a early childhood teacher, stay in an organisation that I felt was not supporting the fundamentals of children.

The bottom line always came to money, not to the child and the child's right.

The professionalism of the staff was always down turned by not employing professionals because they cost too much.

EMMA ALBERICI: Central to the booming child care industry is the $8 billion of taxpayers' money earmarked to be paid directly to the centres over the next four years via the Federal Government's child care benefit.

Each child is allocated up to $150 a week, depending on their parent's income.

But the Community Care lobby is questioning the ethics of diverting Government funds to shareholder returns when they say that money could be used to improve the care and working conditions at their centres.

MICHAEL GORDON: A large part of that revenue coming through, indeed 50 per cent or more, goes in wages which of course goes back through the tax system and what not, and if there's scale, there's payroll tax, there's company tax.

So of every dollar that comes into the sector, there's a fair bit that actually goes back to the Government in one form or other.

I'd argue that it's a very well-targeted form of subsidy and that the Australian economy recoups a large percentage of it back.

EMMA ALBERICI: In Sydney, where demand for care is highest and both of the corporates are aggressively buying up sites, Nicole Broadhurst's son Ky had happily attended the local centre for two years before it was sold to ABC Learning.

NICOLE BROADHURST: It's not like you're dropping a dog at the vet, you know, you're dropping your child off at kindy and you'd expect their main concern to be the children not who they can get in and how much they can make out of it.

EMMA ALBERICI: But Nicole Broadhurst's complaint is not one of simple economics.

It plays to that of every parent's worst fears -- that of the child's safety and security.

Within days of the takeover by ABC, all but two of the existing workers had left and Nicole Broadhurst became anxious.

She sent a friend to collect her child to test their vigilance and then spoke to a staff member about the incident.

NICOLE BROADHURST: I rang them to say, "Look you've just let my child go with someone I haven't authorised."

And they panicked, "Oh, where is he?"

I said, "He's home safe now."

And then they actually had a go at me and said, "Well you should advise us when somebody different is picking up your child."

I said, "I know that, and that's why I didn't advise you, to see what you would do about it."

I thought that was it, if you're going to get him go with just anybody I'm not sending him there anymore, and I actually had to take him out and find alternative arrangements.

EMMA ALBERICI: We questioned ABC Learning about this episode and a spokesperson for the group pointed us to its parents' manual, which states that they only allow parents or persons stated in writing on the enrolment form or emergency card to collect children from the centre.

Parents are asked to ring or notify the centre in writing in the event of someone else collecting the children.

We attempted to speak to the managing director of ABC Learning Eddy Groves, but his office told us he was unavailable for an interview.

NICOLE BROADHURST: I just didn't feel comfortable leaving him there.

I took him out straight away and had to arrange other arrangements so I didn't have to leave work.

In the end if it came to that I would have left work before I left him in that care any longer.

EMMA ALBERICI: With waiting lists for long day care stretching up to two years and the number of community centres dwindling in proportion to corporate counterparts, upset parents are frustrated by the lack of alternatives and given the scale of profits in an industry that derives 60 per cent of its income from the Government, many believe there ought to be greater Commonwealth scrutiny.

KERRY O'BRIEN: And ABC Learning plans to become the first publicly listed company to manage a primary school which it intends to open in Brisbane in 2006.